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Uniswap Labs Under Investigation by SEC for Possible Operational Misuse

UTC by Tolu Ajiboye · 3 min read
Uniswap Labs Under Investigation by SEC for Possible Operational Misuse
Photo: Depositphotos

The SEC’s investigation into Uniswap Labs is to determine whether or not the startup is engaging in any form of operational or marketing malpractice.

Uniswap Labs is currently under investigation by the Securities and Exchange Commission (SEC), according to reports. The regulatory agency is seeking information on how investors use Uniswap and the exchange’s marketing practices. Uniswap Labs is the main developer of Uniswap, the world’s largest decentralized exchange. This probe by the SEC comes amid rallying calls for increased oversight in the digital finance space.

Despite the ongoing investigations, Uniswap Labs issued an official statement pledging to be as cooperative as possible. The statement reads that the company is “committed to complying with the laws and regulations governing our industry and to providing information to regulators that will assist them with any inquiry.” These ongoing investigations by enforcement attorneys are still in the early stages. It might still be too soon to ascertain whether the accused party is found wanting. However, Uniswap Labs has not confirmed or denied the alleged allegations.

Uniswap Labs Investigation Comes amid Increase DeFi Activities

Uniswap has generated over $1 billion in users’ fees in the month of August alone. This makes the exchange the first DeFi protocol to achieve this. Exchange platforms such as Uniswap are fast becoming commonplace in the crypto space and decentralized finance. They are used to facilitate peer-to-peer transactions among users as well as offer several token pairings for trading. In addition, decentralized finance aims to automate a range of traditional financial activities. Such activities include trading or lending cryptocurrencies. For instance, Uniswap permits its users to trade countless unique tokens. The listing process of tokens on the exchange is totally independent of a central person or thing, unlike traditional stock exchanges.

In 2020, Uniswap developed and distributed its own digital asset called UNI, which grants its holders some decision-making peculiarities. Such include the ability to vote on fees and governance rights over the protocol. The total fully diluted value of all UNI tokens in circulation at current prices is $30 billion.

Software developers provide the code that facilitates these operations, which function as ‘protocols’ on the internet. These protocols work without a central server running the programs. Furthermore, they also encompass a distributed network of computers that communicate with each other. According to many of these software developers, they do not control these protocols once initiated. This claim, if accurately proven, may very well reduce their liabilities under security laws.

The SEC Is One of the Most Vocal Supporters of Proper Crypto Regulation

Chairman of the SEC, Gary Gensler begs to differ on the subject. The regulatory agency head believes that even Decentralized Finance (DeFi) operations fall under the ambit of regulatory scrutiny. His reasoning is that developers or middlemen may still have some form of ‘protocol control’, especially those looking to benefit from incentives such as trading fees and digital tokens. Gensler says ownership of the aforementioned grants governance rights over the program. Gary Gensler is one of the proponents for increased government regulation of the crypto space. 

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